DC pension - 30+yrs to retirement, what should I do?

Super_Whiskey

At the moment, I am currently paying in about 6% in to my pension via salary sacrifice with my employer paying 4%.



This goes in to a pension pot with a major pension provider which is worth about £8-9k at the moment. It is currently just sat there under their lifestyle scheme which, from what I understand, is quite low risk and aimed at those who are looking to retire in the next couple of years.


I am currently wondering whether I should be more adventurous with it given that I've got such a long time until I'll be able to access it? If so, what sort of things should I consider?

Albermarle

You are right in that the normal advice is to be invested in more higher risk/return investments when you are younger . That is because you have the time to ride out the increased volatility and history shows you will get a better return in the long run. Your lifestyle scheme should take account of your age but they will tend not be too adventurous .
For funds in pensions , the risk level is usually ( in simple terms ) related to the % in the fund of equites/shares. The most risky but with the potentially higher returns are funds that 100% track stock markets . They are also usually some of the ones with the cheapest charges .
Presumably your employer pension will give you some choices to move your money around if you want to?

tacpot12

Yes, you should be looking at the high risk funds at this stage. "High Risk" in the context of these funds is really medium risk compared to other things that you might invest in like Gold, Wiskey, Art, Classic Cars, Racing Horses etc.

Marcon

Read the provider's literature - there will be plenty of fund factsheets available online, and they will indicate the 'risk' of each type. Remember that most people think of risk in relation to the risk of their capital (savings) going down - but if you don't take that sort of risk, you run other types such as the risk of your pension savings not even keeping pace with inflation.

If you afford to contribute a bit more, you might think about doing so. It may not be possible to use salary sacrifice (either because it will take you below minimum wage levels or simply because your employer isn't prepared to vary the % they will let you sacrifice), but nothing to stop you popping in a bit extra as a personal contribution. The pension provider will claim tax back on your behalf and add it to your pension pot.

Super_Whiskey

Albermarle wrote: »

You are right in that the normal advice is to be invested in more higher risk/return investments when you are younger . That is because you have the time to ride out the increased volatility and history shows you will get a better return in the long run. Your lifestyle scheme should take account of your age but they will tend not be too adventurous .
For funds in pensions , the risk level is usually ( in simple terms ) related to the % in the fund of equites/shares. The most risky but with the potentially higher returns are funds that 100% track stock markets . They are also usually some of the ones with the cheapest charges .
Presumably your employer pension will give you some choices to move your money around if you want to?

Yes there's plenty of choice in terms of the different funds available. Looking at the overview on the providers website they're charging about £2 a month to manage it so I am tempted to go for something more riskier just to beat inflation and the admin charge.

tacpot12 wrote: »

Yes, you should be looking at the high risk funds at this stage. "High Risk" in the context of these funds is really medium risk compared to other things that you might invest in like Gold, Wiskey, Art, Classic Cars, Racing Horses etc.

I don't think I have the appetite for any of those tbh! If I did it'd most likely be whiskey or art.

Marcon wrote: »

Read the provider's literature - there will be plenty of fund factsheets available online, and they will indicate the 'risk' of each type. Remember that most people think of risk in relation to the risk of their capital (savings) going down - but if you don't take that sort of risk, you run other types such as the risk of your pension savings not even keeping pace with inflation.

If you afford to contribute a bit more, you might think about doing so. It may not be possible to use salary sacrifice (either because it will take you below minimum wage levels or simply because your employer isn't prepared to vary the % they will let you sacrifice), but nothing to stop you popping in a bit extra as a personal contribution. The pension provider will claim tax back on your behalf and add it to your pension pot.

As much as I'd like to contribute a bit more, at this time I don't think I'd be able to afford to. As long as the annual allowance is still around then in 10-15 years time, when hopefully my salary should've increased significantly, I can consider it then




If I'm maxing out my employer matched contributions, is there any benefit paying over and above it other than the reduced PAYE on my monthly salary?

MallyGirl

Reduced NI as well.
The extra money in now has 30+ years of compound growth- if you put off increasing contributions till later then you will have to contribute much more

Albermarle

Looking at the overview on the providers website they're charging about £2 a month to manage it

I think you will find there are other charges as £2 a month for nearly £10K is very low.
Normally there are two charges . The pension provider will have a 'platform charge '( to use the jargon)
and there will be a charge for the fund as well . It can be that if you are only checking the actual money being taken for charges you are only seeing the platform charge as the fund charge is taken directly out of the fund. Just guessing a bit without seeing the paperwork.
Realistically you would normally expect to pay around 1% of the total in a workplace pension with a lifestyle fund , sometimes a bit more , sometimes a bit less but in that general area.

lisboa84

Super_Whiskey wrote: »

Yes there's plenty of choice in terms of the different funds available. Looking at the overview on the providers website they're charging about £2 a month to manage it so I am tempted to go for something more riskier just to beat inflation and the admin charge.

Albermarle wrote: »

I think you will find there are other charges as £2 a month for nearly £10K is very low.
Normally there are two charges . The pension provider will have a 'platform charge '( to use the jargon)
and there will be a charge for the fund as well . It can be that if you are only checking the actual money being taken for charges you are only seeing the platform charge as the fund charge is taken directly out of the fund. Just guessing a bit without seeing the paperwork.
Realistically you would normally expect to pay around 1% of the total in a workplace pension with a lifestyle fund , sometimes a bit more , sometimes a bit less but in that general area.

Are DC Platform charges / Fund charges generally paid by the employer?
Or are they deducted from money already in the pot?

Your comment about seeing the paperwork; I decided to have another look at my own latest DC statement, and it states 'administration charges - zero', so I have no idea how much it costs to manage my account, and no idea who's actually paying to manage my account.

Albermarle

Normally the employer is only negotiating the charges, not paying them .
It is a bit more complicated than I first explained. With some workplace pension providers, they only charge for the fund and not for the platform and some do it the other way around .
Fund charges are taken directly out of your fund so you do not see them . I have three workplace pensions ( one current and two old ones ) and they all charge differently .
The Aviva one charges 1% for the platform but most of the funds have no extra charges
. The Standard Life one does not charge for the platform but charges 1% for most of its standard funds. However there is a discount % as well
Another one charges for the platform and the funds separately . Total varies depending on the fund..

Probably deliberately confusing !